Colombia Central Bank Recommends Limits on CBDC Holdings, Spending
• Colombia’s central bank has conducted a study on the potential effects of issuing a retail CBDC.
• The central bank recommends setting holding and spending limits for the digital currency to increase security and privacy.
• Setting limits could also reduce competition with commercial banks and other cash-like instruments.
Colombia’s Central Bank Studies CBDC
Colombia’s Banco de la República has released a study on the expected macroeconomic effects of issuing a retail central bank digital currency (CBDC). The central bank is yet to decide whether or not it will issue a CBDC, but believes that setting limits on CBDC transactions could bring about a number of benefits.
Limits Could Increase Security & Privacy
Setting limits on retail CBDC holdings could increase the security of funds as it would safeguard users from cyberattacks targeting their balances or transactions. In addition, this type of design would allow regulators to deal with the tradeoff between privacy and transparency by offering tiers of limits – low levels of privacy for those who want high holding limits, and higher levels of privacy for those who prefer small holding limits.
Limits Could Reduce Competition With Banks
CBDC spending and holding limits could also reduce competition with commercial banks as they would reduce the demand for a retail CBDC as a store of value in comparison to bank accounts. This could impact the demand for government bonds, commercial papers and term deposit certificates.
Uncertainty Around Issuing A Retail CBDC
While closely monitoring global development concerning CBDC, Colombia’s central bank is still uncertain about whether its nation needs such a digital currency or not. It must take into account that introducing a retail CBDC would need to have economic implications that are thoroughly studied before making any decisions.
Conclusion
The Colombian central bank concluded that introducing a retail CBDC doesn’t pose any significant macroeconomic risks, however setting spending and holding limits may bring many benefits in terms of security, privacy and reducing competition with commercial banks and other cash-like instruments. The decision regarding issuing such currency must be carefully considered before making any decisions due to potential economic implications it may have.
